The battle over the legal standard to which advisors should be held when giving investment advice has two fronts: Advice given by advisors to retirement plans and advice given by advisors to everyone else, including individual investors. The position of the Department of Labor and the SEC The U.S. Department of Labor (DOL) has already…
A few weeks ago, I got home late after a long trip. I’d been traveling a lot recently and didn’t sleep well that night. The next morning, I woke up and felt like I’d been hit by a truck. Emotionally, I was at a really low point. When I came downstairs that morning, I asked…
The academic study of price momentum has intensified considerably since 1993, the year Narasimhan Jegadeesh and Sheridan Titman’s paper, “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency,” appeared in The Journal of Finance. The authors found that buying winning stocks and selling losers generated significant positive returns over three- to 12-month…
Unit investment trusts (UITs) are SEC-regulated investment vehicles in which a portfolio of securities is selected by a sponsor and then deposited into a trust. Assets held in UITs have grown steadily since the financial crisis, increasing from about $20 billion at the close of 2008 to about $87 billion by the end of 2013….
Much has been written about the perils of overconfidence in investing. Nobel laureate Daniel Kahneman reported one compelling study in his book, Thinking, Fast and Slow. CFOs are overconfident You might think CFOs of large corporations would have valuable insight about something as basic as projecting the returns of the S&P 500 index. The data,…
The Federal Reserve has signaled that interest rates will eventually rise. It may be tempting to conclude that, with diligence and perseverance, you could uncover a way to profit from this knowledge. If you find yourself enticed by this possibility, the question you need to ask is, “What do I know about what the Fed…
When choosing a fund manager, there are a wide variety of characteristics an investor can evaluate. Common points of assessment include: Educational background: What degrees has the fund manager earned, and from what schools? Is the fund manager a certified financial adviser (CFA)? Professional experience: Does the portfolio manager have previous experience on the research…
A June 2012 study authored by University of Rochester professor Robert Novy-Marx, “The Other Side of Value: The Gross Profitability Premium,” not only provided investors with new insights into the cross section of stocks returns, but also led to the development of new factor models that incorporate a profitability factor. Novy-Marx’s Findings Before unpacking a…
Humans can be a competitive lot. The way we posture and position ourselves to stand out in a group seems to happen instinctively. After all, in the past we competed for resources and survival. Our lives depended on it. Today, we still compete, but for different reasons. Instead of food, we compete for attention and…
The recent increase in bond yields and the likelihood that the Federal Reserve will begin raising its target rate later this year have elevated investor concerns. Many investors are wondering if this is the beginning of a continued increase in yields and, if so, how it will affect their bond portfolios. From the end of…
A friend of mine recently sold his house. It will be a few years before he’ll buy another one. Because the house was worth a lot more than what he and his wife owed the bank on their mortgage, they are now sitting on a pile of money and wondering what to do with it….
Momentum has been found to be a persistent and pervasive factor in the returns not only of stocks, but of other asset classes (including bonds, commodities and currencies). Compared with the market, value and size risk factors, momentum in equities has earned both the highest premium and the highest Sharpe ratio. However, momentum has also…
I was recently asked to comment on an article that appears in the April 2015 issue of the American Association of Individual Investors Journal. The article is based on the paper “Mutual Fund’s R2 as Predictor of Performance,” which was published in the March 2013 issue of The Review of Financial Studies. As you may…
Last week, I met Vanguard founder Jack Bogle in his office for a video interview. I had asked him if he would be willing to endorse a crowdfunding campaign to help underwrite the production costs of Trade-Up. Trade-Up is the financial television show Wall Street doesn’t want to air. It will give investors responsible, academically…
Last year, U.S. real estate investment trusts (REITs) were the best-performing equity asset class. In addition, U.S. stocks far outperformed international stocks. Unfortunately, historical evidence demonstrates that individual investors tend to be performance chasers. They watch the markets, then buy yesterday’s winners (after the great performance) and sell yesterday’s losers (after the loss has already…